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Investors are always looking for investments that provide a higher return. Mutual fund performance data are transparent and readily available. That is why mutual fund performance data is used by most academic studies that evaluate active management. Academic evidence shows that the keys to long-term investing success are keeping your costs low, creating an allocation based on your goals, risk tolerance and investment time horizon, and then sticking with your plan. Trying to select actively managed funds and/or switch investments as the investment environment changes has been shown to be a way to under-perform, often substantially, and lower your chances of achieving your long-term financial goals.

But, you reason, there must be a better way. Maybe something the ultra-wealthy have access to that I do not! Enter hedge funds.

Hedge funds are open to accredited investors (i.e. the ultra-wealthy) and have fewer restrictions than mutual funds. Hedge fund performance and other data is also rather opaque. See, hedge funds use proprietary techniques that must be protected from other investors that allow them to have such great performance, or is there another reason hedge fund data is opaque.

Enter Warren Buffett! He placed a bet with Protege Partners. Protege Partners are hedge fund managers. Warren bet that the S&P 500 index mutual fund, VFIAX, would outperform a basket of hedge funds selected by Protege Partners for the 10-year period from 2007 - 2016. The stakes were a $1 million donation to the charity of the winners choosing.

These high powered hedge funds with all of their flexibility should easily be able to outperform a lowly S&P 500 index fund. How did it turn out? Warren won easily. During the 10-year window the S&P 500 fund provided a compound annual return of 7.1% while the basket of hedge funds provided a 2.2% compound annual return! You read that correctly, the S&P 500 index fund outperformed by 4.9% annually!

Maybe there is another reason hedge funds do not openly provide data on performance! Hedge funds often charge 2% annually plus 20% of profits above a certain threshold. Those costs are very hard to overcome.

If you are trying to create wealth over the long-term, choose an evidence based investing approach tailored to your goals, risk-tolerance, and investing time-horizon! Keep you costs low and stick with your plan. Those are the keys to investing success!

The U.K. voted to leave the European Union (EU) and stock markets around the world had a negative reaction. What should you do? First, a little background on what happened.

The vote by U.K. citizens was a non-binding referendum, so nothing officially changed today. Based on the referendum, the U.K. Prime Minister, David Cameron, announced that he will resign by October of this year. Mr. Cameron lead the stay in the EU coalition and feels it would be better for someone else to lead the U.K. through the EU exit process.

The U.K. has never been as tightly connected to the EU as some members, retaining their own currency and passport monitoring. But, there is still a lot to do. Once the U.K. officially notifies the EU they are leaving, it is estimated that it will take several years for the U.K. to negotiate new trade deals and unwind their other EU connections. Despite threats from the US and other countries during the debate to put trade negotiations with the U.K. in the back of the line if the U.K. left the EU, my guess is that those negotiations will be fast tracked.

The US stock market (Dow 30) was down 3.4% today. To keep that in perspective, it does not even come close to cracking the top 20 daily percentage declines (the 20th largest decline was 6.98% on September 29, 2008, more than double today's drop). Markets do not like political instability. You can never know for sure, but my guess is that this will be a small blip with a relatively quick recovery. The U.K. wants to remain friendly with the US and their European allies, so everyone should cooperate and make the transition as smooth as possible.

So, what should you do with your investments? First, you should have a written plan with a portfolio designed based on your goals, risk tolerance and investing time horizon. Remember that short-term volatility is why stocks have a higher long-term returns. Times like these are when your plan can help you stay the course and improve your chances of reaching your financial goals!

I come across many people entering their 50s without much retirement savings. They will have to either work substantially longer than they want or substantially lower their lifestyle in retirement. Neither is a good option.

If your child has a job this summer, help them create good financial habits so they do not end up in this situation when they are 50. Suggest they save 15% of what they earn for retirement. If you want to help them and give them a feel for how employer sponsored plans (like 401ks) work, tell them you will match their contributions dollar for dollar up to 15% of what they earn. That provides additional encouragement to make saving for retirement a life-long habit.

A Roth IRA account is a great savings vehicle at this age. Contributions are made after tax and withdrawals are tax free after they reach 59.5 years of age. Have them buy a total US stock market mutual fund or exchange traded fund and leave the money alone for the long-term.

It is not that the amount of money they are saving that will make their retirement. The important part is teaching them the habit of saving 15% of their earnings for retirement. If they do that throughout their career, they should be in financial position for a comfortable retirement when they reach retirement age.

While you are at it, encourage them to give some of their earnings to a not for profit that would be of interest to them. 10% is a good target for this type of giving.

It has been a wild week in the stock market. As of now (8/24/15 at 9:35 am central), the S&P 500 is down 9.6%, developed international markets are down 10.4% and emerging markets are down 13.2% since they opened one week ago on August 17, 2015. With a large drop early today in all of these markets. That can be disconcerting to anyone investing in the stock markets.

The press is not holding back. Here are a few web headlines:

CNN – GLOBAL SELL-OFF (in large font bold)

Forbes – Dow Sheds More Than 1,000 Points After Opening Bell (don’t check and see its down 342 points now)

Fox News – WALL STREET MELTDOWN (in large font bold)

The Wall Street Journal – Dow Pares Losses After Plunge But Still Down Sharply in Global Rout

All of these sound scary (at least the Wall Street Journal provides some context). My wife even called to say that they broke into her radio program to provide a special report on the stock market drop.

Remember the press is in business to get more reader/viewers. Sensationalizing is the way they attract more readers/viewers. Keep a long-term perspective on your investments and do not worry about short-term market fluctuations. I am not predicting that the markets will be up in the short-term, but I do believe that long-term investors will be rewarded for living with the volatility of owning a well-diversified portfolio designed based on their specific situation.

You wake up one day and realize you have a substantial amount of money saved for retirement, but you are not comfortable managing the retirement portfolio you will depend on for income in retirement.The money may come from years of savings, and inheritance, or a divorce where you ex handled investing in the past.Where do you turn for help?

There are financial advisors, brokers, registered investment advisors, wealth managers and financial consultants to name a few titles used to describe professionals that provide investment advice.Three key areas to consider for each professional are their legal obligation to you, their compensation method and their investment approach.

Fiduciary and suitability are the two legal standards that must be followed by investment professionals.Fiduciaries are required to always do what is in your best interest.Professionals that adhere to the suitability standard must provide investment options that are suitable for your situation.Fiduciaries have a much higher legal standard that they must adhere to.

The most important non-investment information you need to understand when looking for investment advice is how the investment professional compensated.All forms of compensation create conflicts of interest between the professional and their client.However, a fee only structure minimizes the conflicts.The fee may be flat or based on the value of the portfolio.Commission based compensation creates the most conflicts as the investment professional may personally make more by trading more than necessary or investing in products that pay him a higher commission.

You can get great advice from investment professionals compensated with either method.However, it is important to factor in the compensation method when you evaluate the advice you are being given.

The final area you should understand is the investment approach that will be used in managing your portfolio. I will cover investment approaches in a future blog entry.